2022 (8) TMI 660 - AT - Customs

Benefit under EPCG Scheme denied - refractory bricks used for re- lining or maintenance of the furnace - exemption denied on the ground that these are not capital goods - Department was of the view that since Furnace Oil could be procured duty free only if it was required for boilers in textile units, M/s Jayant Agro Organics Ltd could not procure the Furnace Oil duty free since they were not a textile unit - Extended period of limitation. HELD THAT - The refractories imported by the appellants are covered by the definition of accessory and, hence, included in the definition of capital goods . Thus, the definition of capital goods not only includes refractories for initial charge but also those imported as replacement for the purpose of re-lining or maintenance of the furnaces. The Appellants have, therefore, correctly availed the benefit of the two exemption notifications, N/N. 102/2009-Cus dated 11-09-2009 and 103/2009-Cus also dated 11-09-2009. The first part of the definition of capital goods uses the term means . The term means is exhaustive in nature and is meant to cover all the items mentioned therein, namely, plant, machinery, equipment or accessories, as ordinarily understood, required for the manufacture or production, either directly or indirectly of goods. Refractory bricks are clearly accessories required for lining of the furnace, and hence indirectly used for manufacture of finished goods by the appellants. The use of the expression refractories for initial lining in the inclusive part of the definition of capital goods does not in any way restrict the meaning of the terms used in the means part of the definition. The refractories meant for re-lining of furnaces, i.e., for replacement, are covered by the means part of the definition of capital goods and this interpretation cannot in anyway be restricted or controlled by the use of the expression refractories for initial lining used in the inclusive part of the definition of capital goods . Extended period of limitation - HELD THAT - The Ld. Advocate of the Appellant is agreed upon, that notwithstanding the fact that Section 28 has not been invoked in the show cause notice or in the impugned order, the department cannot ignore those provisions. The show cause notice ought to have been issued within the time period prescribed therein. The normal time limit prescribed is one year from the relevant date. The extended time limit of 5 years can be invoked only if there are grounds to hold that the Appellant had willfully misstated or suppressed facts from the department. This charge cannot be sustained. The Appeal is allowed both on merits as well as on limitation.

Issues Involved:
1. Definition and applicability of "Capital Goods" under the EPCG scheme.
2. Eligibility of refractory bricks/materials for concessional duty.
3. Interpretation of exemption notifications and related definitions.
4. Applicability of Section 28 of the Customs Act, 1962 regarding the time limit for issuing a demand notice.
5. Legality of confiscation and imposition of penalties.
6. Validity of the adjudication process and consideration of additional evidence.

Detailed Analysis:

1. Definition and Applicability of "Capital Goods" under the EPCG Scheme:
The core issue was whether refractory bricks/materials imported for re-lining and maintenance purposes qualify as "Capital Goods" under the EPCG scheme. The department argued that only refractory materials for initial lining qualify as "Capital Goods." However, the tribunal found that the definition of "Capital Goods" includes accessories required for replacement, modernization, technological upgradation, or expansion, which encompasses refractory bricks used for re-lining and maintenance.

2. Eligibility of Refractory Bricks/Materials for Concessional Duty:
The tribunal examined the notifications and the Foreign Trade Policy (FTP) definitions. It concluded that refractory bricks used for re-lining furnaces qualify as "accessories" under the definition of "Capital Goods." Hence, the appellants were correct in availing the exemption under the EPCG scheme. The tribunal emphasized that the inclusive part of the definition ("refractories for initial lining") does not restrict the main definition's scope.

3. Interpretation of Exemption Notifications and Related Definitions:
The tribunal relied on established legal principles regarding the interpretation of definitions and notifications. It referenced Supreme Court decisions to clarify that the word "includes" in a definition enlarges its scope. Therefore, refractory bricks for re-lining are covered under the main part of the definition of "Capital Goods," and the inclusive part does not limit this interpretation.

4. Applicability of Section 28 of the Customs Act, 1962:
The tribunal held that any demand for short levy or non-levy of duty must adhere to the time limits prescribed under Section 28 of the Customs Act, 1962. The show cause notice issued on 27.10.2016 for the period 04.11.2009 to 30.07.2013 was beyond the one-year limit from the relevant date. The tribunal found no grounds for invoking the extended period of five years, as there was no evidence of willful misstatement or suppression of facts by the appellants.

5. Legality of Confiscation and Imposition of Penalties:
The tribunal ruled that since the imports were duly covered by the exemption notifications, the confiscation of goods and the imposition of fines were unwarranted. It noted that the imported refractory bricks were no longer physically available due to wear and tear, making confiscation and fines inapplicable. Additionally, the tribunal highlighted that penalties cannot be imposed on issues involving interpretation of law.

6. Validity of the Adjudication Process and Consideration of Additional Evidence:
The tribunal allowed the appellant's miscellaneous application to introduce additional evidence, including installation certificates and Export Obligation Discharge Certificates (EODC). It criticized the adjudicating authority for not considering these relevant documents before passing the ex-parte order. The tribunal emphasized that these documents demonstrated compliance with the EPCG scheme's conditions and negated any charges of willful misstatement or suppression.

Conclusion:
The tribunal concluded that the refractory bricks/materials imported by the appellants qualify as "Capital Goods" under the EPCG scheme and are eligible for concessional duty. It ruled that the demand notice was time-barred and the confiscation and penalties were unjustified. The appeal was allowed both on merits and on the grounds of limitation.

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